An investor is considering the two investments shown above. Her cost of capital is 8%. Which of the following statements about these investments is true?
Definitions:
Duration
An indicator that represents how the price of a bond or any similar type of debt is affected by interest rate fluctuations, displayed as a duration in years.
Mispricing
Situations where the market price of an asset deviates from its theoretical or intrinsic value.
Coupon Payments
Regular interest payments made to bondholders, typically on a semi-annual basis, based on the bond's interest rate.
Maturity Value
The amount of money an investment will produce at the end of its holding period, including the principal and interest or dividends.
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